Uptake of office space slow in East African capitals

Office properties continue to be put up in Kigali, Nairobi and Kampala but they lack occupants.

There are many office buildings coming up in Kigali’s central business district. PHOTO | CYRIL NDEGEYA 

BY KABONA ESIARA

IN SUMMARY

  • In Kigali, at least 50,000 square metres of office space has been added to the capital’s business district in the past four months. An additional 95,320 square metres will be built starting this month.
  • Kenya-based MML Development and Project Management projects that 260,128 million square metres will be available in Nairobi by the end of 2016.
  • While the current office space in Kampala could not be established, property developers say the city is edging towards an oversupply, as the properties are concentrated in a few places.

The capital cities of Rwanda, Kenya and Uganda are headed for a glut in office space, as more buildings come up but uptake slows, putting investors’ money at risk.

In Kigali, at least 50,000 square metres of office space has been added to the capital’s business district in the past four months. An additional 95,320 square metres will be built starting this month.

Kenya-based MML Development and Project Management projects that 260,128 million square metres will be available in Nairobi by the end of 2016.

Advertisement

While the current office space in Kampala could not be established, property developers say the city is edging towards an oversupply, as the properties are concentrated in a few places.

Knight Frank estimates 60,000 square metres of office space was made available in 2015, but uptake was slow due to “delays in the oil sector, a weakening Uganda shilling and feared risks associated with the recent general election.”

Kampala’s tallest buildings, including one belonging to the Uganda Retirement Benefits Regulatory Authority on Clement Hill in Kololo and DFCU are not fully occupied.

In Kigali, property managers are struggling to let out space in Peace Plaza (MPP) and Ubumwe Grande in the central business district.

The MMP Plaza was completed in mid-2015, but only 8,092 square metres out of over 20,000 square metres of office space has been rented out so far.

It is estimated that between 2010 and 2015, at least $200 million was invested in building high-end office properties in Kigali. The buildings that include the 20-storey Kigali City Tower, 18-storey Grande Pensions Plaza, 15-Storey MMP Plaza and Ubumwe Grandewere were constructed using loans.

The January-June 2016 National Bank of Rwanda Monetary Policy and Financial Stability Statement shows a slight increase in bad debt in the market.

Bad loans increased from 5.9 per cent registered in June 2015 to seven per cent by end of June this year, an increase that was partly contributed to by debts of property developers.

The low occupancy rates have interrupted the revenue flows from the properties exposing some banks to liquidity concerns.

“The low occupancy rate will negatively affect the financial sector. Developers will find it difficulty to service their loans and this will contribute to loan delinquencies,” said Maurice Toroitich chairman of the Rwanda Banking Association.

KCB Rwanda, Bank of Kigali, Equity Bank, and I&M Bank have grown their loan books to finance real estate projects in Kigali.

With the high end office space supply picking, property developers are advised to diversify into retail where the supply in Rwanda is still low.

Kefa Agwenyi, an architect and property developer in Kigali said retail accommodation premises have the highest rental yields of 11 per cent and 12 per cent.

Residential houses for middle-income earners as well as apartments are still in demand in Kigali.

“If you are seeking returns in the medium-term, apartments are the way to go in the Rwandan market,” said Mr Angwenyi. The current return on investment for apartments is projected at 14 per cent.

Units that cost between $5,700 and $7,600 will recover between 40 per cent and 100 per cent of the capital they invested within a five-year period.

Another factor that is slowing the uptake of office space in Kigali, according to Charles Haba managing director of Century Real Estate, is the concentration of the properties in the middle of the central business district, which discourages many tenants.

More property developers are being urged to build on the outskirts of Kigali as those areas have impressive booking rates.

For instance, the $40 million Kigali Heights mixed use complex — being jointly developed by Kenya’s Fusion Capital and local Rwandan investors — has a 50 per cent booking rate.

“There are many inquiries for office space in Kacyiru, Kimihurura, Nyarutarama and Kagugu,” said Mr Haba, adding that several residential houses in those areas have even been turned into offices.

More From Nation.co.ke
This page might use cookies if your analytics vendor requires them. Accept